Early Wednesday morning just after the stroke of midnight, at an hour usually reserved for state executions, the Marin Healthcare District board will meet at Marin General Hospital to officially terminate the hospital's stormy 15-year relationship with Sutter Health.

According to terms of a legal settlement, Sutter has agreed to surrender its management control of the hospital when the clock strikes 12. At that point, the district's five-member elected board can remove Marin General Hospital Corp.'s board of directors, which is controlled by Sutter, and install its own hand-picked directors, who will oversee the day-to-day operations of the Greenbrae hospital.

Long before the sun rises, the hospital's new managers will begin feeding information into the hospital's brand new computer system. Information on the patients in the hospital at that time will have to be re-entered. It could take 24 to 48 hours before the new system is fully operational.

"It's definitely the most complicated single piece of the transfer, no question about it," said Jon Friedenberg, the district's chief fund and business development officer.

Wanda Jones, president of San Francisco's New Century Healthcare Institute and a former Northern California hospital consultant, said, "If you look around the state, there is not a hospital that has had a smooth installation of a modern information system. They're on the cusp of the razor blade."

If all goes according plan, however, no patient at the hospital will even be aware of the management switch.

Dr. Joel Sklar, a Larkspur cardiologist who will assume the role of chief medical officer at Marin General Hospital, said, "clinically, day to day, nothing much is changing. Physicians are being supportive. People aren't leaving. The stuff that could have been a problem isn't happening."

There were many who said this day would never come, and just three years ago it was easy to see how the naysayers might be right.

In 2007, some of Marin's key physician groups remained skeptical that the hospital could stand alone and some were threatening to abandon the hospital. In June 2007, 90 physicians and 250 nurses signed a petition asking the district to put a detailed plan on the November ballot to sell or lease Marin General Hospital.

"We have no confidence that the district can manage, or oversee the management of a successful community hospital," the petition read.

A month earlier, Sutter had purchased the Marin Square shopping center, 7.3 acres that border San Rafael's Canal neighborhood. In July 2007, Sutter bought 3.35 additional acres adjacent to the shopping center, and in February 2010 it purchased three more adjacent office buildings. The latest purchase pushed the assessed value of Sutter's real estate holdings in that area to more than $46 million.

Sutter has said it will house new outpatient services there, which will compete directly with some of Marin General's most profitable services.

The district board responded to the physicians' petition by hiring a consultant to contact various hospital management groups, including Sutter, to determine if they were interested in purchasing or leasing Marin General. None were.

"Sutter has this business model that doesn't involve the full-service hospital. It involves the limited-service hospital so they can pick off the profitable procedures and leave the unprofitable procedures in someone else's network," said Mike Whipple, a member of the Alliance to Save Our Hospital, an organization that used to be supportive of Sutter's management of Marin General.

"If they'd bid on Marin General, they would have been stuck with the unprofitable work," Whipple said.

Kathryn Graham, a spokeswoman for Sutter Health, said, "Our understanding was that the district was looking for an organization to manage MGH, not to purchase it. Sutter does not manage hospitals; rather, hospitals become affiliates that are part of the system."

With local physicians dubious and Sutter already positioning itself to compete, it was a challenging time for the healthcare district. Board member Sharon Jackson said she became convinced the district needed a high-powered executive to see it through the rocky shoals of the transition.

Domanico recruited

In January 2008, Jackson recruited Lee Domanico, who had played a key role in turning El Camino Hospital in Mountain View into one of the most profitable district-managed hospitals in California. Domanico has a personal style that "exudes competence and know-how," Jackson said.

Lynn Dowling, a hospital business consultant based in Greenbrae who has worked with Domanico, said, "The guy is very talented. Marin General was just astoundingly lucky that he was available."

Domanico replaced Barry Woerman as executive director. Woerman had held the position for a little less than a year. The move proved pivotal for the district.

With credit markets virtually frozen after the bankruptcy of Lehman Brothers in September 2008, Domanico convinced Marin County supervisors in October 2008 to loan the district $20 million. The district desperately needed the money to pay consultants to create a new computer system for the hospital and to arrange additional financing for working capital.

Jackson said one reason the county loaned the district the money was that "under California law, had the hospital failed the county would have been stuck with responsibility for providing the health care."

Although the bad economy complicated financing, it also worked to the district's advantage, "because people didn't split," Jackson said. "We were at risk of losing a lot of key personnel but there was no place for them to go, and they stayed long enough to see things were shaping up."

The settlement agreement between Sutter and the district called for the district to regain control of the hospital no later than July 2010. But as the day of reckoning drew closer, Sutter officials quietly maneuvered to extend the deadline.

District board member Larry Bedard said that soon after he was elected board president in December 2008, David Bradley - the Sutter executive who oversees Marin General and Novato Community Hospital - sought to meet with him to discuss the possibility of Sutter continuing to manage the hospital until 2015, when Marin General Hospital Corp.'s lease expires. Bradley made the meeting contingent on several conditions. One condition was that Domanico not participate.

"That was unacceptable to me," Bedard said. "Perhaps that's the problem we had 20 years ago. We didn't have someone help negotiate the contract with Sutter in 1995."

Bradley declined comment.

In January 2009, Sutter's attorney, Richard Patch, sent a letter to the district's attorney explaining that Sutter was "flexible on determining the exact transfer date."

The district rejected the offer. Bedard said that by then, local doctors had come to believe that the longer Sutter remained in control of the hospital, the longer it would have to craft a competitive strategy.

Money transfers questioned

Dr. Harris (Hank) Simmonds, who was elected to the board in November 2008, said, "It became clear that was not a good deal. By then, the information about how much money Sutter had been drawing out of Marin General had became clear and to me what they were doing seemed very punitive. That may not have been illegal, but it was immoral."

Since Sutter began managing Marin General in 1995, it has transferred $162 million out of the hospital, and Marin Healthcare District managers estimate it will have swept away another $20 million before returning control of Marin General to the district this week. The bulk of the cash transfers, at least $88 million, have been made since 2006 when Sutter set the 2010 deadline to give up control of the hospital.

Assemblyman Jared Huffman, D-San Rafael, has appealed to the Marin General Hospital Corp.'s board and Sutter Health to explain their actions and consider returning the money.

Robert Heller, board chairman of the Marin General Hospital Corp., responded that he was powerless to stop Sutter from taking money out of Marin General.

"We have no control," Heller said. "The control is in Sacramento."

Sutter maintains that the district board approved such cash transfers when it signed its contract with Sutter in 1995. It says money is shared among Sutter hospitals as needed.

The money is sorely missed by the district.

A Marin County Civil Grand Jury report issued in May 2009 questioned whether the district would be able to raise sufficient operating capital given the nation's ongoing economic crisis. The grand jury said the district should have cash on hand equal to at least 100 days of expenses, about $100 million, when it takes control of the hospital. The grand jury urged the district to sell Marin General to a financially strong health care system "such as Sutter Health."

In April 2010, Domanico announced the district had secured a bank loan and commitments from managed care companies that would guarantee it access to $60 million in working capital when it regained control of Marin General. Domanico said each of the six major managed care companies that have contracts with Marin General have agreed to advance the district 60 days of payments against future services. The money has to be paid back by the end of the year.

In addition, Domanico said the district was finalizing contracts with the managed care companies that feature rates of payment that are at or above the rates of payment Sutter is receiving from the companies - something that skeptics of district control said would never happen.

Jackson said, "To a large extent it was the credibility of the management team that Lee was building, that despite the bad economy, made the lending institutions more open."